Ask Nelson: Should I Buy a House

Really enjoy reading your blog posts. My girlfriend and I are moving to Saskatoon as she’s going to law school. We wanted to buy a place there seems like there’s a variety of options up to 330k with a basement suite to rent out to help with that. Some friends say rent some say buy… not sure if you have an opinion as I know the Saskatoon market has dropped off in the last couple years so in my head right now would be a decent time to buy.

I’m going to assume Cory is that little weiner kid from Boy Meets World and his girlfriend is the lovely Topanga. YOU DON’T DESERVE HER. The law school thing even fits. I am 100% convinced this is true.

While I like Cory’s leaning towards a basement suite, it does make this question a little more complicated to answer. First, let’s tackle the main issue.

Should they buy a house?

We’ll split this part of the analysis into a couple different sections, talking about buying a house in general and then doing a half-assed analysis of the Saskatoon market.

Generally, I believe people should buy a place only if they plan to stay there for a decade or longer. Sure, some people have made solid gains owning over a short period of time, but those results are mainly driven by luck. Real estate does tend to go up over time, but on a year-to-year basis its performance is about as reliable as your slacker friend’s promise to help move furniture. I’M STILL WAITING, JERK.

It also costs a lot to dispose of real estate. You might luck out and get a hot market when it’s time to sell, which makes it far easier to sell that place yourself. But it’s far more likely to be a crummier market when it’s time to sell; meaning you’re stuck paying a Realtor 5% to sell the place. At least pick one who wears a short skirt, Cory.

And then there are home maintenance costs, taxes, insurance, and so on. All of those add up, although I’m convinced they don’t need to be as much as other people spend. Who cares if your bathroom is a little outdated? Just think about the money you’re saving and I guarantee an old sink will look much better.

As for the Saskatoon market, the median sales price in January was $330,000. That’s down a bit from all-time highs of just over $350,000 in mid-2015, but is up substantially over a five- and ten-year period. Median family income in Saskatchewan’s capital is just over $80,000 (according to 2015’s census data), putting the market at just over 4.1 times what the average family makes. This is a reasonably valued market, especially with a five-year mortgage setting you back about 3% a year.

Keep in mind, however, that Saskatoon’s unemployment rate is higher than Regina’s. It is growing smartly, with a year-over-year population increase of 7%. The relatively high unemployment (especially for a government town) gives me pause, but only a little.

Overall, I’d say the Saskatoon real estate market is fairly valued. If Cory and Topenga plan to stay for a while I don’t hate the idea of buying a house today. Now onto the basement suite issue.

Should they get a suite?

Buying a suite is often not a very suite deal for a newbie landlord.

(Ducks as tomatoes come flying in) Yeah, probably deserved that.

It’s a little harder than the average person thinks to be a landlord. Without a working knowledge of your province’s residential tenancies act, you’ll have dirtbag tenants walking all over you in no time. Even with a good grasp of the law, it still takes balls to stand up to somebody who’s breaking the terms of their lease. Amateur landlords don’t recognize the importance of doing the proper paperwork, which often comes back to bite them square in the ass.

I don’t want to discourage my new best friend Cory, because it’s very possible for him to get into the basement suite game. And I firmly believe basement suites are great for first-time landlords, since sharing a set of walls with your landlord will generally dissuade would-be scammers. He just needs to do things right and he’ll be fine.

A bigger concern might be what the missus thinks about sharing a house with strangers.

So, should he do it?

Buying a place is a big decision. Cory has a million variables to consider, including whether he should invite Nelson to the housewarming party. I won’t bring a gift and I will vomit somewhere, but other than that I’ll be an A+ house guest.

The good news is he plans on doing it smart and getting a little revenue to offset his housing expenses. This will help insulate him from shifts in the market. As long as he commits to owning for a while (and keeping that sweet, sweet rental stream going), then there’s nothing wrong with buying today.

If you’d like your question featured on the ol’ FU machine, contact me and we can make that happen. I won’t even charge!*

4 Comments

Deborah
on March 5, 2018 at 9:11 am

Kudos for noting that real estate transactions have significant costs. Conventional wisdom holds that it takes at least five years to recoup these, longer in a down or even Medicare market. Having owned a couple of homes for less than 5 years, I would rent if I were Cory, unless he’s planning on living in Saskatoon for quite some years.

Excellent analysis as usual Nelson. Good for you to recognize the answer depends just as much as how long they plan to say in Saskatoon. What are the prospects of employment for Topanga in Saskatoon after graduation. Does she even want to stay there after graduation or does she want to move to a big city to practise law. If they are only going to be there for 3 years, then buying may be more hassle than any potential financial gain and renting would be the easier course. If they are planning to make Saskatoon home, then by all means, buy.

I look at home ownership as a very low risk bond investment that pays 3% interest (the long term real estate price curve) that you get to live in. It’s mostly a lifestyle choice but with a long term investment benefit so it has a place in the general investing scheme of things. And the lifestyle choice is really a personal thing… I loath living in rented accommodation and would rather live in a mobile home I owned than a rented house or an apartment. As someone in my 5th house, I agree with the others that you need to be in it for more than 5 years for it to be worth while. It takes a couple years in just to feel settled in to a house you purchase. If I thought I was only going to spend a couple of years somewhere, no way I’d buy a place. If you want to be mobile, then it can be an anchor.

I wouldn’t buy. Law school takes three years, right? Right now it may seem like forever away, but once she graduates you want to keep your options open. Once she gets hired to that high-paying high-powered job in God-knows-where, the last thing you want is to be worrying about offloading a home in Saskatoon.

I have a college buddy who graduated from law and moved to a military base in the middle of nowhere to practise (as a civilian.) It was all DUI and divorces cases. He didn’t like the location, but he got a great position for someone right out of law school. You never know where you’ll end up, housing can be a real anchor if you want to chase an opportunity.